Daniels Consulting is considering raising additional capital. Daniels plans to r
ID: 2563037 • Letter: D
Question
Daniels Consulting is considering raising additional capital. Daniels plans to raise the capital by issuing $500,000 of 8%, seven-year bonds on December 1, 2017. The bonds pay interest semiannually on May 31 and January 31. On December 1, 2017, the market rate of interest required by investors for similar bonds is 10%. The bonds are sold at $450,480.
1. Calculate the premium, or discount related to the bond below the journal entry form.
2. Calculate and record below the cash received on the bond issue date.
3. Journalize the adjusting entry related to this bond on Dec. 31, including the amortization of the premium or discount using the straight-line interest method. Note that the amortized premium or discount is only for one month.
Explanation / Answer
Answer 1 & 2 Journal entry to record issue of bonds Date Account Titles Debit Credit Dec.1,2017 Cash $450,480 Discount on Bonds Payable $49,520 Bonds Payable $500,000 Discount related to Bond = Bond par value - Bond issue price = $500000 - $450480 = $49,520 Cash received on bond issue date = $450480 Answer 3 Discount amortization as of Dec.31,2017 using straight line method = Total discount / Total no.of months = $49520 /84 months = $590 per month Adjusting Journal entry as on Dec.31 Date Account Titles Debit Credit Dec.31,2017 Interest Expense [$500000*8%/12 months] $3,333 Discount on Bonds Payable $590 Interest Payable $2,743
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